The healthcare landscape is always changing, and nowhere is this more evident than in revenue cycle management (RCM). As we move towards 2025, top healthcare leaders are actively working to keep up with the latest RCM trends. Why? Because adapting your strategies with new advancements is crucial for maintaining financial stability, accelerating revenue, reducing denials, and delivering quality patient care.
One area that demands significant attention is patient accounts receivable (AR)—the money owed to your practice directly by the financially responsible party, or "guarantor". While the focus often falls on insurance collections, patient AR has grown significantly, now averaging 30-40% of total AR, up from a previous 5-10%. This shift means effective patient collections are no longer optional; they are essential for your organization's financial health.
Drawing insights from industry experts, let's explore key best practices for managing patient AR, from understanding financial responsibility to optimizing collection strategies, all while keeping the patient experience at the forefront.
I. Understanding the "Guarantor": Who Pays the Bill?
First things first, let's clarify who the "guarantor" is. In simple terms, the guarantor is the person responsible for paying the bill. Typically, this is the patient themselves, with a few important exceptions: if the patient is an incapacitated adult or an unemancipated minor (under 18), their parent or legal guardian becomes the guarantor.
It's vital to remember that the guarantor isn't necessarily the insurance subscriber. What truly matters, especially in cases of dispute, is who signs the financial responsibility documents. While billing systems might register one person as the guarantor, the legally binding signature on the document is paramount.
Complex scenarios, such as divorce decrees assigning financial responsibility to a specific parent, require careful handling. While you might note such details on the account, the signed document remains the ultimate arbiter. To protect your practice, ensure your financial responsibility documents are legally binding by outlining all duties and responsibilities for each party.
II. Demystifying Patient Balance Root Causes
Why does a balance end up in patient responsibility? Understanding the root causes is key to effective collection.
Insurance Did Not Pay/Process
Sometimes, the insurance company doesn't process or pay a claim. This can happen in a few ways:
Intentionally Not Billed: A patient might request that their insurance not be billed. In such cases, if you're in-network with the patient's plan, it’s best practice to review your payer-provider contract for guidance on what can be collected and your rights if the patient files a claim independently. Always have the guarantor sign a document clearly stating their financial responsibility when no insurance is filed by the practice. This document should also outline your policy if the patient later requests a claim submission. Typically, for known self-pay scenarios, a financial arrangement—like a self-pay discount or payment plan—is made upfront. Ensure your self-pay financial documents explicitly address how your organization will handle a patient's subsequent request to bill their insurance after a self-pay arrangement has been made.
Unknown Before Service: This occurs when insurance coverage is inactive, or the service isn't covered by the patient’s plan, unbeknownst to the practice before service was rendered. In these situations, once the insurance has been billed and a patient balance remains, you must ensure the amount collected from the patient matches the Explanation of Benefits (EOB).
Interpreting EOBs: Pay close attention to group codes. A PR (Patient Responsibility) group code indicates the patient is financially responsible, while a CO (Contractual Obligation) group code means the dollar amount indicated is the financial responsibility of the contracted provider. If there's an inconsistency (e.g., a CO group code but the EOB field indicates patient responsibility), contact the payer for clarification and create an internal resource for future reference. Remember, violating contract terms could jeopardize your payer contracts.
Patient Involvement for Resolution: Sometimes, a denied or pended claim requires patient involvement. While tempting to send a statement, be careful: a statement is an attempt to collect a debt. If the EOB shows no patient responsibility, it’s best practice to send a letter explaining the situation, not a statement, to avoid issues with payer-provider contracts and regulations like the Fair Debt Collection Practices Act.
Patient Share After Insurance Processes
This refers to the portion of the bill the patient owes after their insurance has processed the claim, based on their benefit plan. There are three main types:
Copays: A fixed amount, usually collected at the time of service. Copays are easy to determine from insurance cards or eligibility reports and are generally straightforward to collect.
Deductibles: A flat amount the patient pays before insurance starts to cover services. High-deductible health plans are increasingly common, with deductibles ranging from $5,000 to $30,000. While best practice is to collect this upfront, it's often difficult because the amount depends on the provider's negotiated rate.
Coinsurance: A percentage of the negotiated rate that the patient shares with the insurance company (e.g., insurance pays 80%, patient pays 20%). Like deductibles, coinsurance is challenging to estimate pre-service as it relies on the negotiated rate.
For both deductibles and coinsurance, utilizing patient estimation software can significantly help with earlier collections. While gathering contracted rates can be challenging upfront, this investment will ultimately reduce collection efforts and improve your organization's financial health.
III. Cornerstone of Collections: Clear Policies and Consistency
Effective collections hinge on clear policies and consistent application.
Develop and Follow a Policy: Create a comprehensive collections policy and ensure your team adheres to it strictly.
Consistency is Compliance: When it comes to payment arrangements, discounts, and financial assistance, consistency is key to compliance. If exceptions are made, document them clearly in the account. Be cautious of policies that favor specific demographics, and always consult legal counsel for advice on any exceptions.
Transparency: Clearly post your policies for patients in waiting rooms, on your website, and in treatment rooms. Provide easy-to-access and understand materials for your staff and notify them promptly of any changes. This empowers your team to explain balances clearly to patients.
Documentation: Retain signed permission-to-treat and payment agreement forms. These documents are crucial for resolving any financial disputes.
IV. Optimizing Collection Strategies
To truly optimize collections, you need a proactive and strategic approach.
Legal Awareness: Stay informed about state and federal regulations governing patient collections, particularly the Fair Debt Collection Practices Act.
Actioning Aging Balances: Define clear actions for patient balances as they age (e.g., at 30, 60, 90, and 120+ days from service date or billing date).
Strategic Communication: Decide on the optimal number of statements to send and the dollar threshold for phone calls. Research suggests phone calls may not always be effective, and considering patient experience is paramount.
"Studies show that one of the top reasons that patients don't return to a practice is their experience with billing. So in addition to worrying about their health, patients are very worried about what their financial responsibility will be. There's a general lack of knowledge among the public of how insurance and healthcare works. Even those who deal with this all the time had difficulty navigating those nuances."
Focus on providing simple explanations of balances and effortless payment options, such as mobile pay and payment plans, to enhance the patient experience.
Proactive Tools: As mentioned, patient estimation software (often available through a clearinghouse) can help collect deductibles and coinsurance earlier. This upfront work, though challenging, significantly reduces post-service collection efforts.
Financial Options: Offer financial assistance programs or third-party options like CareCredit. CareCredit, for instance, removes the oversight burden from the practice entirely, as patients deal directly with the third-party lender.
Handling Self-Pay Balances: For 100% self-pay balances where insurance isn't involved, consider offering discounts or a reduced self-pay fee schedule. Always ensure consistency with discounts for compliance. If a patient requests a significant reduction (e.g., 50-70% or full adjustment due to financial hardship), consider directing them to a financial assistance program.
Handling Balances After Insurance: When reducing amounts owed per an EOB, exercise caution due to payer-provider contracts. Refer to the OIG website for compliance guidance and ensure any courtesy adjustments are applied consistently. Always confirm the balance you bill matches the EOB exactly.
V. Protecting Revenue and Patient Relationships: The Role of Technology
The increase in patient AR from 5-10% to 30-40% of total AR means patient balances can no longer be overlooked for an organization’s financial health. This shift demands a proactive approach to patient collections, both pre-service and post-service.
One of the most impactful ways to address this challenge is to embrace technological innovation. Technology can improve pre-service collections through tools for payment plans, propensity-to-pay determination, patient outreach, and financial assistance.
"I know there isn't a single person listening to this podcast that hasn't heard about some type of technology within the revenue cycle that promises to make all kinds of improvements... The current state of the industry is not sustainable with the current volume of qualified employees. What does that mean? There's a staffing shortage. There's just not enough people to keep these processes moving, to keep the revenue flowing, effectively, efficiently and keeping the doors open. It's time to embrace the technology that's available."
While technology is not meant to entirely replace human involvement, it significantly reduces errors and administrative burdens.
"But let me make it clear that I do not support removing humans from the revenue cycle process completely. Humans add cognitive value that technology just doesn't have, but it certainly has value to reduce entry errors, administrative tasks and much more."
In fact, AI and automation are rapidly transforming healthcare RCM. About 80% of healthcare executives are increasing spending on IT and software due to the rise of AI technologies, including generative AI. These tools enhance efficiency, optimize workflows, and minimize errors in areas like patient registration, eligibility verification, claims processing, denials management, and payment posting.
This is where Agentic AI comes in. Unlike traditional Robotic Process Automation (RPA) which can be rigid and break easily when encountering unexpected scenarios, Agentic AI operates more like a human worker. Magical’s Agentic AI employees are designed to autonomously perceive, decide, and act to achieve goals, adapting to new situations based on predefined instructions. They use reasoning models, real-time data retrieval, and goal-based execution to make automations more reliable.
Magical's Agentic AI can automate complex processes effortlessly, handling tasks like moving data between systems, navigating forms, and submitting information without human input. It offers smart data transformation, intelligent PDF processing (like extracting data from medical records or insurance forms), and AI-powered resilience that adapts to changes and handles edge cases, ensuring self-healing workflows.
By leveraging Agentic AI, healthcare organizations can effectively address persistent staffing shortages and rising labor costs by automating time-consuming workflows, freeing up human workers to focus on more strategic and creative endeavors. Magical helps healthcare companies put their RCM workflows on autopilot, automating entire processes end-to-end, requiring no human oversight (though full monitoring is available). In fact, Magical has been noted for helping increase revenue by decreasing billing errors and speeding up patient charting by 25%.
Considering cybersecurity, a major concern in handling sensitive patient data, Magical is designed to be secure. It doesn't store keystrokes or patient data, minimizing the risk of data breaches.
Leading RCM companies, including Magical, share common traits: a commitment to innovation, comprehensive service offerings, customer-centricity, and a focus on compliance and security. Magical, rated 4.3 out of 5 stars on Google, is listed among the top RCM companies for healthcare organizations looking to automate complex RCM workflows with fully autonomous, end-to-end AI-driven solutions.
Think about it: what if your most time-consuming revenue cycle tasks could handle themselves? Magical’s Agentic AI transforms repetitive workflows into scalable automations that can even run while your team sleeps.
Ready to experience how Agentic AI can make your patient collections process seamless, reduce administrative burdens, and free your team to focus on what truly matters—patient care?
Book a demo with Magical today to see how our Agentic AI employees can transform your healthcare revenue cycle.
By embracing these best practices and leveraging advanced technologies, revenue cycle leaders can steer their organizations through challenging times, protect financial health, and ensure a positive financial experience for patients.
